Despite the huge pressures on public finances, the Coalition Government has taken unprecedented steps to protect councils most reliant on central government funding and freeze council tax, Local Government Secretary Eric Pickles said today.

Today the provisional details of the funding settlement for councils in England for 2011-12 and 2012-13 were published. Reductions to council spending reflect the urgent need for the public sector to help put the country’s finances back in order, keep interest rates down and prevent national debt escalating to £1.4 trillion of taxpayers’ money.

Ministers have taken a progressive and fair approach to calculating how the £29 billion of central taxpayer funding for local government grants this year will be allocated. More money is being channelled at those areas of the country that have the highest levels of need. A plain English guide to today’s Finance Settlement is also being published to cut through Whitehall jargon, this is available here: www.communities.gov.uk/documents/localgovernment/pdf/1796186.pdf.

Ministers are clear that the settlement represents a fair deal that will enable councils to protect the front-line services people rely on, shield the most vulnerable places, safeguard the most vulnerable people, and protect taxpayers’ interests. The Government has:

Given more weight to those parts of the country with the highest levels of need. For example, funding per head for residents in Hackney in 2011-12 will be £1043 compared with £125 per head in Wokingham.

Ensured that the settlement is fair between different parts of the country - north and south, rural and urban, metropolitan and shire. Formula grant is being directed to where it is needed most.

Sought to insulate those areas of the country most dependant on central government funding by creating four separate grant bands to group councils into, based on the extent to which different councils are reliant on government funding. These bands or ‘floors’ set different limits for their reductions and thereby protect councils against the sharper grant reductions they would otherwise have faced.

Established a transitional grant of £85 million for 2011-12 and £14 million in 2012-13. This transitional funding will help councils manage issues related to the ending of the Working Neighbourhoods Fund. This was a three year fund that was always scheduled to end in March 2011.

Ministers have also sought to deliver a fair deal to local taxpayers and all councils by:

Taking a fairer and more progressive approach to calculating grant than that used in the past by focusing on the impact any grant reductions would have on the all important spending power of individual councils. Local authority budgets are not just made up of formula grant - they also include other government grants plus council tax receipts. A focus on spending power therefore considers the financial position of councils in the round - this includes funding from the Department for Health totalling £648 million in 2011-12 and £622 million in 2012-13 of NHS funding to support social care and benefit health, improving integrated working.

Limiting the average spending power reduction across all councils to 4.4 per cent in 2011-12 and ensuring that no council faces a reduction of more than 8.9 per cent in spending power in 2011-12 or 2012-13; the provisional settlement today distributes the £29 billion in 2011-12 and the £27 billion in 2012-13 that the October Spending Review allocated to local authorities through formula grant.

Protecting the public from council tax rises by making £650 million available to fund a one year freeze on council tax, offering real help to families and pensioners. The funding will continue over the Spending Review period to prevent council tax from shooting up next year. Local taxpayers living in an average Band D home could save up to £70 a year over the next four years.

Rolling £2.4 billion funding into the formula grant to support adult social care services - one of the biggest pressures councils face - ensuring that the lion’s share of resources go to councils delivering social services and that the needs of the most vulnerable people are met.

Making additional resources available through the Early Intervention Grant to support early years’ services, the Regional Growth Fund to support areas to deliver economic growth and the New Homes Bonus to establish a financial incentive for councils to deliver housing.

Secretary of State for Communities and Local Government Eric Pickles said:

This is all about how we raise and spend taxpayers’ money. Government has been living a credit card lifestyle at taxpayers’ expense, and now it’s time to pay off some of those bills.

There has been a great deal of speculation and scaremongering about what the implications of the local government settlement might be. The reality is that despite the toughest economic circumstances in recent memory, the Coalition Government will ensure that next year the average reduction in councils’ spending power will be 4.4 per cent.

By adopting an intelligent and fair approach to the way funding is allocated we have been able to ensure those parts of the country that are most reliant on central funding continue to get the lion’s share of the taxpayers’ money that is available. Funding fairness underpins this settlement.

We are protecting the public from excessive council tax rises by stopping any council tax revaluation and setting up a £650 million fund so town halls can freeze council tax this April. This will offer real help to families and pensioners.

Taxpayers are no longer prepared to write a blank cheque for the public sector. But they do want less interference in their local communities from Whitehall government. So the Coalition Government is delivering the most significant shift in power from officials in London to elected local councils in a generation.

Whilst resources are tight in the current financial climate, council freedoms are not. Councils now have unprecedented freedoms over how to prioritise their money. The need to reduce public spending means that this is a unique settlement, but also a unique opportunity for councils to show how efficient they can be, root out the wasteful spending that still exists and ensure that money goes to the frontline public services.

The settlement is set against the background of the most radical shift in power to local government for a generation. Local authorities have already been given full control over £7 billion of funding, all non-schools ring fenced grants have been removed, councils and the NHS are being brought closer together and the bureaucratic burdens associated with inspection and targets have been removed.

This package of measures gives councils a radical new set of tools to manage reductions in line with the priorities and needs of their residents. They can protect frontline services providing they use the significant new freedoms and flexibilities they have been given to put everything they do under the spotlight, share services and increase transparency. A total of £2.4 billion of adult social care funding will also have been moved in to Formula Grant by 2014-15 - this is £1 billion more than for social care grants this year.

Notes to editors

The Department for Communities and Local Government has today published a Plain English Guide to the funding settlement to assist people who understandably may not know their Relative Needs Formulas from their Area Cost Adjustments, or their Damping Floors from their Formula Grants. A Plain English Guide to the Local Government Finance Settlement for 2011-12 is available here: www.communities.gov.uk/documents/localgovernment/pdf/1796186.pdf.

Local Government accounts for around 25 per cent of all public expenditure. Councils were always going to have to play their part in fixing the black hole in the nation’s finances.

Around a quarter of all council revenue is raised through council tax. The amount raised by individual councils through council tax varies dependant on the nature of the area. Revenue from council tax, along with other income a council receives, determines the overall level of a councils spending power. The more dependent a council is on formula grant funding from central government to fund their budgets the lower their spending power.

If in calculating the settlement Ministers had applied a blanket reduction in formula grant to all authorities it would not have accounted for the fact that some councils are more self sufficient and thus have more money available to spend and would have left a number of councils significantly worse off than others.

In order to fund the transitional grant and ensure that councils are protected from unmanageable reductions in their budgets in the first year, DCLG has taken difficult decisions on its own budget. Despite a reduction in DCLG revenue funding of 46 per cent in cash terms (equivalent to 51 per cent in real terms) over the spending review and 12 per cent in cash terms in 2011-12 the department has provided £85 million additional money next year for local government over and above the formula grant settlement. This has the effect of reducing the spending available for the department’s own programmes by a further 4 per cent.

The details of the spending power analysis and details of how the transitional grant limits reductions to 8.9 per cent in both years is set out in a consultation on the transitional grant available on the local government finance website. The analysis of spending power includes funding £648 million in 2011-12, and £622 million in 2012-13, through the NHS budget, to support social services and benefit health - promoting integrated working between Primary Care Trusts and local authorities.

The settlement is fair between different parts of the country - north and south, rural and urban, metropolitan and shire. We are getting formula grant to where it is needed most

In calculating the settlement ministers have ensured that formula grant funding per head is higher in those parts of the country with the highest level of need. For example, needy councils receiving high per head funding in 2011-12 are: Hackney, £1043; Tower Hamlets, £968; Liverpool, £764; Manchester, £714; Leicester, £602. Whereas less needy authorities receive much lower per head funding in 2011-12 are: Stockport, £305; Solihull, £263; Bromley, £214; Richmond upon Thames £158; Wokingham, £125.

This announcement marks the start of a further short period of statutory consultation which runs to 17 January. Ministers will then finalise their proposals and the settlement for 2011-12 will be debated in Parliament in early February in time for councils to set their budgets for next year.

The Coalition Government is giving more freedoms and flexibilities to councils, from reducing ring-fencing to bringing in a general power of competence in the Localism Bill. By cutting the red tape and Whitehall interference which holds councils back, this will give them the ability to protect frontline services and focus their spending on local priorities. This includes ending the expensive Comprehensive Area Assessments and Local Area Agreements. Independent research put the average annual cost of reporting back to government at £1.8 million. Leicestershire councils found they had 90 full time staff collecting and processing more than 3,000 individual data items for central government at a cost of £3.7 million a year. They also faced 83 different inspections every year.

The Localism Bill overturns decades of central government control and gives power back to local communities. We aren’t just devolving power to local councils - we are also giving more power to citizens, community groups and neighbourhoods, to help local people shape and influence the places in which they live and help build the Big Society.

Councils can protect frontline services by sharing services and back office functions, improve procurement to get more for less, bring escalating senior pay under control, and use transparency to cut waste and empower the public to see how their money could be better spent.

The Home Office has today published allocations of grant to police authorities in England and Wales for 2011-12 and given an indication of how it intends to allocate funding for the years 2012-13 to 2014-15.

The Department for Transport has also published today the local transport capital settlement for individual local authorities in England. This gives details of the allocation of more than £3 billion over the next 4 years for local highways maintenance and over £1.3 billion for small transport schemes. The announcement gives the individual amounts that each authority will receive over the next two years, and indicative amounts for the two years after that. Funding allocations are calculated according to needs-based formulae that are developed with local authorities. The funding is not ring-fenced, and local authorities are free to spend their allocations in accordance with their priorities. This announcement follows a recent consultation on local transport capital funding. A summary of responses and the Department’s proposed next steps are available on the Department’s website at: www.dft.gov.uk/localtransportfunding (external link).

The Department for Education is announcing local authority allocations for their Dedicated Schools Grant (DSG) and capital for 2011-12 and for the Early Intervention Grant in 2011-12 and 2012-13 and total funding for the pupil premium.

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